Analysis: More cuts on the way

By Kellie Lunney

June 11, 2012

It seems odd to use the word “budget” to describe the federal government’s annual fiscal plan. After all, a budget implies frugality, and let’s face it: The $3.5 trillion federal budget isn’t exactly a model of restraint.

Everyone agrees we need to spend less, but no one agrees on how to do that. To make a dent in the $1.3 trillion deficit, political leaders seriously must tackle reform in three major areas: the tax code, entitlement programs and government operations. Will they do it in the next few years? It’s a crap shoot, especially since 2012 is an election year, but hey, we’re optimists. Here are five budget trends to watch this year:

Deficit Reduction

The cuts are coming, one way or another. The question is, will the Obama administration and Congress agree on a grand plan that thoughtfully reins in spending, or will across-the-board cuts hit federal agencies beginning in 2013? Many observers predict sequestration won’t happen, sparing the government the nightmare of automatic cuts. What’s the alternative?

Doing more of nothing doesn’t seem wise, politically or practically. President Obama’s fiscal 2013 budget proposal is lean, and likely will be even leaner after Congress is done with it. Federal agencies and managers would be smart to expect and plan for smaller portions in the foreseeable future. It’s possible that last year’s epic budget battles, the failure of the super committee, and Capitol Hill’s abysmal public approval rating during an election year will motivate the powers-that-be to buckle down and get serious about deficit reduction. Here’s hoping.

Shared Sacrifice

Yeah, we’re sick of hearing about shared sacrifice, too, but that doesn’t mean it’s going anywhere. “One way or another, we are going to enact some reforms to the [federal] retirement system,” says Marc Goldwein, senior policy director at the bipartisan, nonprofit Committee for a Responsible Federal Budget. Obama has recommended increasing the amount all feds contribute to their pensions as part of overall deficit reduction, as have several lawmakers; in February, Congress approved legislation requiring new employees hired after Dec. 31, 2012, and returning feds with less than five years of service to contribute more to their defined benefit plans. And in May, the House passed a bill requiring current feds to pay more toward their pensions.

Other proposals floating around in the name of reducing spending include a high-five average salary calculation for annuities for new hires rather than the current high-three average pay calculation and the elimination of the Federal Employees Retirement System minimum supplement for individuals not subject to mandatory retirement starting in 2013. One bright spot for employees: Initial efforts to extend the federal pay freeze were shot down in Congress. On a gloomier note: New pay freeze proposals have emerged. Goldwein says federal workers are much better off if lawmakers can craft a big deficit reduction deal, as opposed to enacting incremental changes that repeatedly hack away at feds’ pay and benefits, keeping them in a chronic state of unrest.

Smaller Federal Workforce

Federal agencies have made great use of buyouts and early retirement packages to help save money during the next decade. Fewer federal workers on the payroll help the overall bottom line of the government’s budget in the short term, but the thinner ranks could affect agencies’ ability to efficiently administer the benefits and services the public demands. Agencies will be pinching pennies and if buyouts and early outs don’t help them make ends meet, then it could mean furloughs or layoffs in some departments. If across-the-board cuts take effect, then a significantly downsized federal workforce is a certainty.

Expiring Provisions

Congress still has to figure out what to do about the expiring Bush tax cuts and most likely will have to raise the debt ceiling again before the end of the year. Sound familiar? These same issues dominated 2011 and they are cropping up again in 2012. On the upside, they will force Congress to confront once again the elephant(s) in the room when it comes to the budget: taxes and entitlement programs. The election, however, means serious changes are unlikely. A serious discussion would be a decent start though.

Multiyear Budgeting

The budget appropriations process is broken, and that’s something everyone agrees on. In 2011, there were eight continuing resolutions, three near government shutdowns, one partial shutdown at the Federal Aviation Administration, and a whole lotta gridlock. The prevalence of omnibus legislation means there’s rarely a stand-alone appropriations bill funding individual agencies. All this creates uncertainty and anxiety, personally and professionally, for the 2 million federal workers who run the government.

Lawmakers from both parties have talked for years about moving all federal agencies to a multiyear appropriations process to spare them the pain of continuing resolutions and shutdown threats, but also help them improve program oversight and better allocate scant resources. Last year was such a hot mess that perhaps it will motivate lawmakers to enact real reforms to the annual budget process.